How does an FSA account work?

How does an FSA account work?

First, you decide how much money to put into your FSA for the coming plan year (most employers allow a maximum election of $2,550 per Health Care Reform; this will increase to $2,600 in 2017). Your employer will then divide that total amount into smaller, equal portions that will be deducted from your paycheck pre-tax over the course of the year. The money is deducted before you even see your paycheck, so it makes it easier to save and also reduces your taxable income, thereby providing you with tax savings. Sometimes, your employer may also contribute to your FSA. If they do, any contributions are non-taxable to you and do not count towards the $2,500 limit for 2016 and $2,600 for 2017. When you have a qualified health cost, you can pay for it with the pre-tax dollars set aside in your FSA. Without an FSA, you would still pay for these costs, but you would do so with money in your paycheck after federal (and, most often, state and local) taxes have been removed.

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